SoftBank’s plan to dominate global tech is going wrong

The greatest gambler in venture capital is on a losing streak. Masayoshi Son, the entrepreneur who founded the Japanese conglomerate, SoftBank, has watched several of his big bets on the tech sector land in the zero pocket.

SoftBank’s Vision Fund -– the largest private equity operation in the world – has announced a writedown of $16.7 billion. It is not the first time Mr Son has lost a gamble. When the first Dotcom bubble burst twenty years ago, he saw $70 billion wiped from his net worth, more than anyone else in history.

Ups and downs

SoftBank has enjoyed strokes of luck over the years, most notably with the early acquisition of a stake in the Chinese internet company Alibaba, which soared in value. That enabled Mr Son to convince other wealthy organisations to back his experiments, including Apple Inc and the sovereign wealth funds of both Saudi Arabia and Abu Dhabi. The Vision Fund assembled a $100 billion war chest. There was talk of another $100 billion to follow.

SoftBank used the hoard to pump money into start-ups involved in robotics, artificial intelligence (AI) and the biotech industry, as well as firms which promised to enliven mundane businesses with whizzy new technology. It has not proved an easy field in which to pick winners. Some of the hunches seem bizarre, such as a $300 million stake in a dog walking service called Wag! The model, Kendall Jenner, and her dog, Mew, receive free walks for life for promoting the service, but a pet-owner in Florida complained that her terrier was returned dead to her doorstep following a blunder by a walker.

Making connections

SoftBank also has a stake in Slack Technologies, which connects teams working remotely, and in ByteDance, the Chinese owner of the video app TikTok, through which youngsters share pranks and dance memes. Both firms could thrive during lockdowns, although neither are guaranteed cash cows.

The Vision Fund is also saddled with investments in sectors where business has all but dried up. Its greatest pain stems from WeWork, an office rental company which branded itself as a cool tech start-up and was in trouble over its exuberant valuation before the pandemic, when an IPO was suddenly called off. WeWork’s offices are mostly closed and it is unclear if customers will return. The debacle has damaged SoftBank’s reputation and led to questions about its ability to sustain credible partnerships.

Critical voices

SoftBank’s critics claim it is better at raising capital than investing money. Even as late as last year, it was persuading banks such as Mizuho, JPMorgan Chase and UBS to keep on lending it cash. However, under pressure from activist shareholders, it is now selling assets, including equity in Alibaba. The goal is to raise $41 billion to buy back shares and slash debt.

Still, Masayoshi Son dreams big. He believes the internet of things is the key to human progress. SoftBank’s breezy slogan is: “Information Revolution. Happiness for everyone.” However, these are not happy times and Mr Son once took to Twitter to say that he believes the saddest thing in life is loneliness.

In a time of lockdown and isolation, SoftBank can take comfort that some of its tech investments are bringing people together. But it is hard to imagine that an online meeting or a shared dance meme will completely compensate for painful losses elsewhere.

Calling time on China: PM Abe wants Japan’s businesses to come home

Prime Minister Shinzo Abe is encouraging companies to close some of their factories in China and move their manufacturing facilities back to Japan.

This is an important policy shift and one with significant implications for the Japanese economy and the rest of Asia, yet it has had relatively little press coverage, due to the huge amount of media attention being paid to the coronavirus crisis.

However, the Nikkei Asian Review has been flagging the story strongly, claiming that “Sino-Japanese relations are at a crossroads.”

High level plan

I recently renewed my subscription to the Nikkei’s English language website and I am rather glad that I did, because reading through it has reminded me that the Nikkei’s journalists gain access to the highest level discussions in Tokyo.

Staff writer Katsuji Nakazawa reports on talks between Prime Minister Abe and Hiroaki Nakanishi, chairman of the Japan Business Federation, the powerful business lobby known as Keidanren.

The Prime Minister is quoted as saying: “Due to the coronavirus, fewer products are coming from China to Japan. People are worried about our supply chains.”

Mr Abe pressed companies to relocate the manufacture of high added value items to Japan. He also said that businesses should diversify their supply chains beyond China to include countries in the ASEAN region.

Financial incentive

The relationship between the Prime Minister and business leaders is very close. However, Mr Abe cannot give orders to the members of the Keidanren and expect all businesses to tow the line.

What the government can do is to use money to encourage certain actions, so it’s now set aside 240 billion yen ($2.2 billion) for companies which reorganise their supply chains.

A company called Iris Ohyama has already taken up the offer, according to Nikkei. It’s planning to shift production of face masks out of China and make them instead in Miyagi Prefecture in northern Japan. It plans to produce 150 million masks per month by August.

America First

It’s not only the Japanese that are rethinking their China strategy. Donald Trump has been urging American companies to do more manufacturing at home and less in China.

Mark Mobius, founder of Mobius Capital Partners, told CNBC that there is a strong preference for relocation to the US, or if that’s not possible, to either Mexico or Canada.

“A lot of buyers, and a lot of people depending on the supply chain in China, are now having second thoughts. They are beginning to diversify their supply chain as much as possible to be closer to home,” said Mr Mobius.

He didn’t mention Japan but he did say he sees opportunities for several developing and middle income countries.

“I think there’s going to be a diversification, where these supply chains get moved into places like Vietnam, Bangladesh, Turkey and even Brazil,” said Mr Mobius.

Voice of the hawks

Some lawmakers in America have called for the United States to consolidate supply chains for pharmaceuticals and other critical goods.

These calls are in tune with hawkish messages on China from the President’s inner circle, and from Mr Trump himself.

At the weekend, the President told a White House briefing that he blames China for the global pandemic and its huge economic fall out.

“It could have been stopped in China before it started and it wasn’t, and the whole world is suffering because of it,” said Mr Trump.

Saving relationships from coronavirus

Many people in Japan are worried their marriages will be wrecked by the coronavirus crisis.

A survey by NHK television found that 80% of couples think their relationship will become strained. Respondents who live in small apartments say they are especially stressed at the prospect of being cooped up with their spouses for many weeks.

The ominous phrase “coronavirus divorce” is trending on social media.

Fortunately, in my view, the people of Japan are skilled at finding solutions to complex problems. They have already realised the social pressure caused by the coronavirus outbreak – including the threat of divorce – and are attempting to respond appropriately.

Relationship tips

Take for example the popular morning TV show on NHK Asa-Ichi, which means “Morning First.” It’s inviting a relationship counsellor called Harumi Takakusagi on air regularly. She offers tips to couples on how to avoid rows and resentment.

Her main advice is to be mindful that each couple is a team and to try to communicate regularly on a deep level.

Another option, for some, is to plan small escapes from one’s wife or husband. The AFP news agency reports that one company is offering to rent out apartments to people who crave private time at the very reasonable price of 4,400 yen (US $40) a day.

Spokesman Kosuke Amano told AFP that the service also comes with the offer of a free 30-minute divorce consultation with a legal official.

State of emergency

The lockdown in Japan is not as severe as it is in some other countries.

It does not cover the whole nation; the current state of emergency stretches over seven regions. The law does not prevent people from going out, although it does strongly discourage them from doing unnecessary things.

The big pressure on family life stems from the closure of schools and the decision by many companies to instruct staff to work from home, sometimes for the first time in their careers.

Even though they are not in the office, remote workers are constantly watched and guided. In Japan’s team-orientated work culture, people expect very clear instructions to be sent from above. Managers therefore tend to bombard their subordinates with messages, which adds to the stress of working in an unfamiliar environment.

Learning to adapt

The Financial Times contacted a car parts supplier called Yorozu, which has implemented remote working for staff based at its Yokohama headquarters.

Apparently, the transition has not been a smooth one.

“This is all very new for us and we are struggling with many things including communication,” said chief executive Mr Shido, who still comes into the office every day. “But we have no choice in this emergency situation and it will be a good opportunity for us to adapt.”

Perhaps the best approach for companies is to follow the advice of marriage counsellor Harumi Takakusagi and to prioritise teamwork and encourage deep communication. But those are demanding goals at the best of times, and are even more challenging during a major crisis.

What is Japan’s exit strategy from the coronavirus emergency?

As much of Japan enters a state of emergency, it might seem premature to ask when it will end. But at some point, there will need to be a plan to get things back to normal.

Austria may provide a clue on how to do this.

Austria is the first country in Europe to ease its lockdown against the pandemic. I am sure that other places will follow its strategy, if it turns out to be successful.

Austria’s plan

The Austrian government announced its relaxation measures at a press conference this week.

It will take the following steps:

  • From April 14th, small shops, do-it-yourself stores and garden centres will be allowed to reopen.
  • From May 1st, all shops, shopping centres and hairdressers will be allowed to reopen.
  • From mid-May, restaurants, hotels and other service providers will probably be able to open gradually.

Is that a timetable that Japan could also follow?

At the moment, the state of emergency is scheduled to last until May 6th, covering Tokyo, Kanagawa, Saitama, Chiba, Osaka and Fukuoka.

Fewer people, more disease

Austria has a population of less than nine million people, whereas Japan’s population is about 127 million. Yet despite its much smaller population, Austria has confirmed about 112,000 thousand cases of coronavirus, compared to 4,100 in Japan.

In Austria, the rate of Covid-19 infection is slowing. Japan’s Prime Minister Shinzo Abe has said “we are not at the stage where a rapid nationwide spread of the disease is being observed.” However, there is concern over the rise in infections in Tokyo, particularly among young people.

Island nation

There are huge geographical differences between Austria and Japan. Austria is landlocked and borders eight European states, whereas the island nation of Japan has no land borders.

Both countries have an obligation to their citizens to control arrivals from abroad. This will be an easier task for Japan than for Austria. Many flights have already been cancelled: BA’s last flight back from Tokyo to London will operate on Wednesday (8th April).

Economic trade-off

It’s inevitable that the Covid-19 crisis will push Japan into a deep recession, exacerbated by the postponement of the Olympic Games. The government and the Bank of Japan have offered extensive help to businesses and individuals and Prime Minister Abe said on TV this week that “we will maintain economic and social activity to the greatest extent possible.”

Mr Abe recognises that there is a strong economic case to try to keep the lockdown short. But as the government of Japan considers whether to follow the Austrian example and gradually re-open the economy, it must also ensure economic factors do not detract from its duty to protect society from this terrible disease.